We have investigated the subcellular localization, transforming capacity and cellular protein binding properties of a mutant middle T antigen, 82JF3. This mutant lacks the carboxyterminal 86 amino acids of middle T and, as expected, failed to associate with cellular membranes. Like other cytoplasmic mutants, it also failed to transform. Nevertheless, 82JF3 middle T antigen associated with pp60c-src and increased its tyrosine kinase activity. The associated pp60c-src was also cytoplasmic, raising interesting questions about the nature and formation of the complex. This soluble complex also contained very reduced levels both of the p81 protein and of associated phosphatidylinositol (PI) kinase activity. These results are consistent with the hypothesis that p81 is a component of PI kinase.